Commercial Property Leases

Lord Rooker: My honourable friend the Parliamentary Under-Secretary of State has made the following Written Ministerial Statement.
	The Government are today announcing a forthcoming consultation about whether to legislate to regulate terms in commercial property leases and if so what form that regulation should take.
	In April 2002, the commercial property industry introduced a new voluntary code of practice for commercial property leases. This sought to address government concern about the lack of choice and flexibility in commercial leasing; in particular, the lack of alternatives to upward only rent reviews in longer leases and the poor information available to small business tenants. The Government announced that they would review the impact of the code, and the Office of the Deputy Prime Minister commissioned the University of Reading to undertake research. The office asked the university to prepare an interim report on the first year of the code, by the end of 2003, and a final report on the whole of the first two years of the code, by the end of this year. The Government announced that they would consider whether it would be sufficient to continue relying on a voluntary code of practice or whether to move to regulate lease terms, in the light of the research, feedback from stakeholders and an analysis of complaints received.
	Informal feedback during the first year of the code was that despite major efforts to disseminate it widely, it was having little effect on leasing practices. In view of this, the Chancellor of the Exchequer announced in the 2003 Budget Report that if the interim report suggested that little progress had been made, we would consult during 2004 on legislative options. This would enable the Government to introduce legislation at an early stage if the final report then confirmed that progress had been disappointing and the Government concluded that they should proceed with legislation.
	Earlier this year the Office of the Deputy Prime Minister received Reading University's interim report, which we are publishing on our website today. This paints a disappointing picture of the impact of the code in its first year. It has found that although there has been no reversal of previous trends towards shorter leases and that more leases contain operable "break" clauses, rent review provisions are almost universally upwards only. It is particularly disappointing that there are few signs yet of landlords offering alternative leasing packages at different prices, although the report finds that a degree of negotiation does take place. The Government are also concerned about the evidence that small business occupiers have too little information to be able to negotiate the best deals.
	The Office of the Deputy Prime Minister will therefore shortly issue a consultation paper in conjunction with the Welsh Assembly government about the regulation of commercial lease terms in England and Wales. This will seek views on the whole principle of legislation in this field as well as the various options for regulating lease terms. The Government will not make a decision about whether or not to legislate until we have studied the final report from Reading University, due at the end of this year, taking account of the outcome of the consultation exercise.